Knowing when you can refinance after a short sale is crucial. Generally you will wait two to three years before getting a new loan approved.
By: Ilyce Glink and Samuel Tamkin
Q: Thanks for all the good information you provide. About 18 months ago, I sold short an investment property. I would like to refinance my primary home now or later this year. I have been told that in order to refinance I would have to wait 24 months.
Recently I heard on a local radio show that if you sold short and were delinquent on payments over 120 days you would have to wait at least 3 years to refinance. Is this correct?
I’ve had no other credit issues other than that short sale and have never been late on any payments. My credit score is 718 and my spouse’s is around 800. The investment property was in my name only.
A: If you’ve recently checked your credit score, you might also want to pull a copy of your credit report from the 3 major credit reporting bureaus. You can do that by going to AnnualCreditReport.com.
At this site, you will be able to download each report and view it for free. By law, the credit reporting bureaus must allow you to download your credit report once per year for free and this is their site to do it. You may be offered products and services, but can decline them all and still download your credit reports.
What you’re looking for on your credit history is exactly how the bank that held your loan for the investment property reported your short sale. You have a good credit score and most people that go through a short sale would have been hurt worse financially, and would be living with a credit score quite a bit lower than the one you now have.
Some commercial lenders may not report a short sale in the same way (or in as damaging a way) as residential lenders. You might be in luck and find out that the short sale wasn’t reported at all. However, if the short sale was reported but it wasn’t on a residential property, a subsequent residential lender might treat that commercial or investment real estate transaction gone bad differently (and less severely) than a residential one.
Talk to a good mortgage lender and mortgage broker. Don’t have them pull a copy of your credit history, but rather have them review the free printouts you will have obtained from AnnualCreditReport.com. See if they can confirm how the lender reported your short sale (if you can’t figure it out yourself) and then discuss how that short sale affects your ability to refinance your primary residence.
If the short sale was reported and has affected your credit history, it will take you about 3 to 7 years to recover fully from the short sale on your credit history. Given that your credit score appears to be 718 now (which is pretty good), you might be in luck and might be able to refinance now.
In general, with residential properties, we’ve heard that the banks would generally make you wait two to three years before giving you a new loan after a short sale. The wait might be three to five years after a foreclosure.
Nevertheless, as with many of the issues surrounding the Great Recession, we have also heard of people obtaining loans in as short as 18 months and others who may have to wait up to 5 years. The variability in granting loans is the reason we don’t want you to walk into a mortgage lender to have them pull your credit history. That pull will ding your credit if you don’t end up applying for a loan within 30 days.
We’d rather see you research the issue further with the information you have. Once you have a better idea of where you stand, what your property is worth, how your spouse’s credit score and credit history affect your ability to refinance your home, you can then apply with a good, reputable lender to get a loan and refinance your home.